Jury Finds Brokerage Firm Breached Contract

June 18, 2004 (PLANSPONSOR.com)—By issuing a margin call that forced a customer to liquidate investments in various fund accounts, Refco Capital Markets, Ltd. and Refco Securities, Inc. breached their contract and duty of good faith and fair dealing, a jury in the Supreme Court of the State of New York found.

Plaintiff Tradewinds Financial Corporations said that Refco’s issuance of the margin call was wrongful because the securities held as collateral had not materially declined in value.   Tradewinds is seeking $45 million in damages, which will not be addressed until the damages phase of the trial is heard in the fall.

“While the securities at issue were complex, the jury was able to see that the fundamental issue was simple: brokerage firms need to value a client’s assets reasonably and in good faith when issuing a margin call,” said Robert Scannell, a principal of Tradewinds, investment advisor that manages investment partnerships focused on emerging market securities, in a news release.